Q investment models, factor complementary and monopolistic competition

Omar Licandro ()

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: The observed fact that firms invest even if capacities are not fully employed does not fit well into most standard formalizations of optimal firm behavior. In this paper, the q investment approach is adapted to an imperfectly competitive economy where the representative firm is assumed to face demand uncertainty. Nominal rigidities and short-run factor complementarity are imposed as sufficient conditions to allow for the coexistence of investment and excess capacity. Since capacities are underemployed, marginal q is shown to diverge from average q. Finally, excess capacity subsists at steady state which makes it more than a shortrun phenomenon

Keywords: Tobin's; q; Investment; Monopolistic; Competition; Quantity; Rationing; Model (search for similar items in EconPapers)
Date: 1991-02
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Q Investment Models, Factor Complementarity and Monopolistic Competition (1992)
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Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:2794

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